The temp sensor in question is an input for controling a/f mixtures. If it is off/broken/out of calibration, the fuel management thinks the car is not up to temp and runs the a/f on the rich side...so, that is why your mechanic said you need a sensor..and why you get crap milage
The temp that you see on the guage is a different sensor altogether and only reports coolant temp back to that gauge. If that gauge is reading correctly, you do not have a thermostat problem...
http://catalog.worldpac.com/mercedesshop/sophio/wizard.jsp?partner=mercedesshop&clientid=catalog.mercedesshop&baseurl=http://catalog.peachparts.com/&cookieid=2AO123CS42C70U3Y8C&year=1988&make=MB&model=300-TE-001&category=P&part=Water+Temperature+Sender
You can see that your car had CIS sensor changes , so, as previously posted, you have to have the engine # to find which sensor your engines system is designed to use...